TMI Blog1958 (10) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... endants 2 and 3 claim to be the managing directors. Defendants 4 and 5 are stated to have been co-opted as directors by the Board of Directors in 1956 and their term would expire on the date of the next annual general meeting, 3. One Naracasseri Krishnan owned 4536 shares in the first defendant company. The said Krishnan died on 2-1-1951 leaving a will giving his properties including the shares in. the company to his two daughters who were then minors. The 2nd defendant and. one Sumithra Ammal, wife of N. S. Krishnan had been appointed executors under the will by the deceased Krishnan. As the management of the estate was not found conducive or beneficial to the interests of the minors, the High Court of Madras, in O. P. No. 274 of 1952 passed an order on 11-12-1952 removing 2nd defendant and Sumithra Ammal from the office of executors' and appointed the 8th defendant, the Official Trustee, Madras as the executor and administrator of the estate of N. S. Krishnan. The name of the 8th defendant was duly entered in the registers of the company as holder of the said 4536 shares in the place of N. S. Krishnan after removing the name of the second defendant and Sumithra Ammal wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff, who was also a director, was due to retire on 22-7-1957 and the period of co-option of defendants 4 and 5 as directors will also expire on that day. Defendants 2 to 5 knew fullwell that they will not get a seat in the new directorate to be elected at the general meeting on 22-7-1957. Therefore, they conceived the idea of preventing the 8th defendant from exercising his vote in the matter of election of new directors and in the matter of opposing, the re-election of defendants 4 and 5 and also opposing the balance sheet etc. 7. The annual general meeting held on 28-7-1957 started as usual. The plaintiffs Were present at the meeting. Deliberately and with a dishonest motive, the presence of the 8th defendant by his proxy, the first plaintiff, was not recorded in the minutes book. The 4th defendant presided at the meeting and he did not declare at the commencement of the meeting that the proxy of the 8th defendant has been rejected. After the reading of the minutes of the last meeting was over, the next item in the agenda, namely, the consideration of the balance sheet and other allied matters were taken up. The first plaintiff opposed the same as he was entitled to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and it amounts to a denial of the right of the 8th defendant to exercise his vote through the proxy. Therefore, the entire proceedings of the meeting held on 22-7-1957 are void, illegal and ultra vires and beyond the powers of the share-holders who passed the various resolutions 011 that day. In consequence, the passing of the audit report, the balance sheet and the election of defendants 4 and 5 as directors and preventing the election of the three directors proposed by the first plaintiff from being placed before the meeting for consideration are illegal and not binding on the company or its share-holders. Therefore, the plaintiffs claim a declaration to that effect. They also claim a mandatory order of injunction directing an annual meeting of the share-holders to be properly convened to consider the agenda placed before the meeting held on 22-7-1957, permitting the 8th defendant to take part in the said meeting either in person or by proxy. The election of defendants 4 and 5 as directors at the said meeting is also null and void. About 3-8-1957 defendants 6 and 7 are also stated to have been co-opted as additional directors which also is not valid. Thus defendants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in person or by proxy. They allege The name of the person who holds the office of official trustee, Madras, should be entered in the register of shareholders and then alone he shall have a right to vote. The provisions in the Companies Act and those in die Articles of Association of the first defendant company relating to transfer and transmission of shares show clearly that the Official Trustee or an executor as such is not entitled to vote in person or by proxy unless his name is entered in the register of shares as the holder of the same . 13. In paragraph 4 of the written statement they admit that in the meeting held prior to 22-7-1957, the said Official Trustee, the 8th defendant, was allowed to vote by proxy. But this circumstance, by itself, will not clothe the Official Trustee with a right to vote on future occasions also. The Official Trustee represents the estate of the deceased and holds the shares in trust for others and, therefore, he shall have no right to vote by the mere fact of entry of his name in the registers of the company. The defendants further allege that the Managing Directors began to draw their salary and conveyance allowances from 2-4-1958 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n duly noted. The 4th defendant was the Chairman of the Board of Directors and he took the chair for the annual general meeting on 22-7-1957. The first item in the agenda, namely the reading of the minutes of the 86th General meeting held on 31-6-1956 and of the 11th extraordinary meeting held on 5-11-1956 were gone through and duly passed. The next step was the reading of the annual report of the Board of Directors and the admitted balance sheet and statement of accounts for the year ending 31-12-1956. They were read and the Chairman proposed their adoption. It was then that the first plaintiff opposed the same on the ground that the remuneration paid to the Managing Directors had not been passed by the general body. A poll was demanded by the first plaintiff and six other shareholders. At that time the 6th defendant challenged the right of the Official Trustee to vote by proxy and the Chairman gave his ruling that the proxy given by the Official Trustee was not valid in view of Section 153 of the Companies Act and Arts. 15, 44 and 77 of the Articles of Association. Therefore, he ruled that the name of the Executor should be entered in the list of shareholders and since it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1957 on the ground that it was an illegal or improper one or void otherwise. Even if the plaintiffs have any grievance, it is open to them to apply to the Central Government to call for the annual general meeting. The share-holders can, if at all, ask for the summoning of an extraordinary meeting and not annual meetings. No suit lies either for calling for an annual general meeting or an extraordinary meeting of the Company. In any event, the calling of a general meeting or of an extraordinary meeting or the removal and appointment of directors are all matters relating to the internal management of the company and the court has no jurisdiction to interfere in the internal affairs of a company. Sufficient safeguards are provided under the Companies Act, 11956, and suitable remedies are also provided therein. If the plaintiffs have any real grievance, the proper course for them would be to approach the various authorities prescribed for such matters under the Companies Act and a suit of this nature in a civil court does not lie. On these grounds the defendants prayed for a dismissal of the suit with their costs. 18. The third defendant filed a separate written statement. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiffs have already stated the 8th defendant further states that the ruling of the Chairman which resulted in preventing him from exercising his right is wrongful and illegal and therefore the resolutions passed at the said meeting are all invalid and illegal. There is no properly constituted board in charge of the affairs of the company and all the acts of the contesting defendants are illegal and ultra vires. He also states that he has reason to believe that the ruling given by the 4th defendant regarding his proxy was not bona fide and that it has been brought about by manoeuvring by the second defendant. The second defendant is very inimically disposed towards the estate of N. S. Krishnan in view of the fact that the 8th defendant had to launch a litigation against him for rendition of accounts. If the 8th defendant's proxy had been allowed to exercise his legitimate rights, the balance sheet and profit and loss account for the year ending 61-12-1956 would not have been adopted and all the other resolutions stated to have been passed would not also have been passed at that meeting. With a view to have their own way and to prevent proper persons coming on the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actually held; but some of the proceedings therein, after preventing the 8th defendant's proxy from voting were illegal and therefore the meeting has to be continued from the stage when the pool was demanded. 25. On the question as to whether the ruling of the 4th defendant as Chairman of that meeting regarding right of the 8th defendant to vote by proxy was correct, the trial court held that though there is an allegation of mala fides against the 4th defendant the plaintiffs have not established the same. But after consideration of all the relevant provisions of the Companies Act and the provisions of the Official Trustees Act, the learned Judge held that the 8th defendant was entitled to vote either in person or by proxy. The contention that as the personal name of the official trustee has not been entered in the register he is not entitled to vote, was rejected by the learned Judge. 26. As it was admitted before him that the 8th defendant had certainly a right to question the ruling of the Chairman about his proxy, the learned Judge discussed the question as to whether the plaintiffs have also a right to question the said ruling and bring this suit. Here again, the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37th annual general meeting about the right of the 8th defendant to vote is correct; (2) even if the said ruling is not correct, the plaintiffs have only to seek appropriate remedies provided in the Companies Act, namely, by an approach to the Central Government or to the Company Court, and a suit in a civil court is not maintainable; and (3) in any event, the plaintiffs have no right to maintain the present suit. 30. On the other hand, Mr. V. K. K. Menon, the learned counsel for the plaintiffs, has supported the reasoning of the subordinate courts on the material points arising for decision. According to the learned counsel, a suit like the present is maintainable only in a civil court and there is no other remedy provided for obtaining the reliefs prayed for in the suit before any other forum. He also supported the stand taken by the plaintiffs that they are entitled to maintain the present action. 31. Mr, Devan, appearing on behalf of the learned Advocate General representing the 8th defendant, has supported the stand taken by Mr. V. K. Krishna Menon. Mr. Devan has drawn our attention to the correspondence that passed between the 8th defendant and the company, namely, EXS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could support the finding of the learned District Judge about the conduct of the 4th defendant being actuated by fraud and mala fides. Therefore, in view of this statement by Mr. V. K. Krishna Menon, we hold that the learned District Judge was not justified in attributing fraud or mala fides to the 4th defendant when he gave the ruling. Whether the ruling was legal or not we will consider in another context. But whatever the validity of the said ruling may be, we are of opinion that the 4th defendant was not actuated by any fraud or mala fides when he gave that ruling. 35. The first contention of Mr. K. P. Abraham, learned counsel for the appellants, is that the ruling given by the 4th defendant was perfectly correct. According to the learned counsel, unless the personal name of the Official Trustee is entered as a share-holder in the registers of the company, the 8th defendant is not entitled to vote either in person or by proxy. The learned counsel relied upon Section 153 and Section 176 of the Companies Act. Section 153 is to the effect that: No notice of any trust, express, implied or constructive shall be entered on the register of members or of debenture holders, or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole. This does not mean that a corporation sole' cannot be a share-holder under the Companies' Act or cannot execute a proxy. If it is a 'body corporate', the proxy should be under its seal or in the manner prescribed under Section 176, Clause (5). If it is a 'corporation sole', all that is required is that the proxy shall be in writing and shall be signed by the appointer or his attorney duly authorised in writing. In this case there is no dispute that the proxy executed by the 8th defendant in favour of the first plaintiff has been in writing, and has been Signed by the appointer, namely, the 8th defendant as Official Trustee, Madras. Further, the provisions of the Official Trustees Act give a direct answer to the contentions of Mr. Abraham. Section 6 of the Official Trustees Act, Central Act II of 1913, states that the Official Trustee shall be a 'corporation sole' by the name of the Official Trustee of the State for which he is appointed, and as such Official Trustee, shall have perpetual succession and an official seal and may sue and be sued in his corporate name. Section 14 of the said Act again says that: The entry of the Official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 14 of the Official Trustees Act is very clear that the entry of the Official Trustee by that name shall not constitute notice of a trust. Therefore, by the entry of the Official Trustee as the shareholder of a company there is no question of any notice of trust being recognised contrary to the provisions of Section 153 of the Companies Act. Therefore, the reliance placed upon Section 153 by the 4th defendant for negativing the right of the 8th defendant to vote by proxy cannot be sustained. Nor are we able to find in Articles 15, 44 and 74 of the Articles of Association, any support for the stand taken by the Chairman. Article 15 is only to the effect that the Company shall not be bound by or recognise any contingent, future, partial or equitable interest in. the nature of a trust or otherwise in any share. Article 44 is also only to the effect that the executor or administrator of a deceased shareholder shall be the only person recognised by the company as having any title or interest in the shares registered in his name etc. Article 77 provides that any person becoming entitled to any share by transmission as provided by the Articles shall be entitled to vote in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the holder of the office of Official Trustee must be entered in the register so as to entitle him to vote. We do not see any warrant for this contention in any of the provisions of the Official Trustees Act, namely, Central Act II of 1913 or the Companies Act. The name contemplated under the Act is only the Official Trustee of the State and it is only by that name that Section 6 empowers him to sue and to be sued in his corporate name. Section 6 is also clear that the Official Trustee shall be a corporation sole by the name of the Official Trustee of the State. In this case the Official Trustee is the Official Trustee, Madras, and he has been entered as such in the registers of the Company. He has no other name and the contention of Mr, Abraham that the personal name of the Official Trustee must be entered before he can claim a right to vote is devoid of any merits. Therefore, the foregoing discussion will clearly show that the ruling of the 4th defendant that unless the personal name of the Official Trustee has been entered in the books of the company the 8th defendant is not entitled to vote, is clearly wrong in law and cannot be supported. 38. The next contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual general meeting and that of the next. (e) Every annual general meeting shall be called for a time during business hours, on a day that is not a public holiday, and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate; and die notices calling the meeting shall specify it as the annual general meeting . Section 167 is as follows: 167. Power of Central Government to call annual general meetings--(1) If default is made in holding an annual, general meeting in accordance with Section 166, the Central Government may, notwithstanding anything in this Act or in the articles of the company, on the application of any member of the company, call or direct the calling of, a general meeting of the company and give such ancillary or consequential directions as the Central Government thinks expedient in relation to the calling, holding and conducting of the meeting. Explanation: The directions that may be given under this sub-section may include a direction that one member of the Company present in person or by proxy shall be deemed to constitute a meeting. (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the requisitionists as represent either a majority in value of the paid-up-share capital held by all of them or not less than one-tenth of such of the paid up-share capital of the company as is referred to in Clause (a) of Sub-section (4), whichever is less; or (c) in the case of a company not having a share capital, by such of the requisitionists as represent not less than one-tenth of the total voting power of all the members of the company referred to in Clause (b) of Sub-section (4). Explanation.-- For the purposes of this subsection, the Board shall, in the case of a meeting at which a resolution is to be proposed as a special resolution, be deemed not to nave duly convened the meeting if they do not give such notice thereof as is required by Sub-section (2) of Section 189. (7) A meeting called under Sub-section (6) by the requisitionists or any of them-- (a) shall be called in the same manner, as nearly as possible, as that in which meetings are to be called by the Board; but (b) shall not be held after the expiration of three months from the date of the deposit of the requisition. Explanation.-- Nothing in Clause (b) shall be deemed to prevent a meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the company to be called, held and conducted in such manner as the Court thinks fit; and. (b) give such ancillary or consequential directions as the Court thinks expedient, including directions modifying or supplementing in relation to the calling, holding and conducting of the meeting, the operation of the provisions of this Act and of the company's articles. Explanation. The directions that may be given under this sub-section may include a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting. (2) Any meeting called, held and conducted in accordance with any such order shall, for all purposes, be deemed to be a meeting of the company duly called, held and conducted. Sections 234 - 239 have also been relied upon by Mr. Abraham as giving a right to the plaintiffs to seek relief elsewhere. We do not see any scope for the application of Sections 234 - 239 in this case and therefore we do not at all think it necessary to advert to those provisions which deal with contingencies arising under totally different circumstances. 42. Mr. Abraham further contended that if some wrong resolutions have been passed it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such matters and in such circumstances. 44. After consideration of the various sections relied upon by both sides we are of opinion that Mr. V K. K. Menon is well founded in his contentions. 45. Section 166 provides for the company holding a general meeting within the periods mentioned therein which is styled its annual general meeting. The subjects mentioned in Sections 210, 284 and 256 can be transacted only at such annual general meetings. Though the plaint is not very. happy in certain respects, nevertheless the plaint proceeds only on the basis that an annual general meeting was held on 22-7-1957.' There is no dispute even on the side of the appellants that notices for such meeting were issued. According to the contesting defendants the meeting was held, items in the agenda were gone through and ultimately the meeting was dissolved. Whereas according to the plaintiffs, the meeting was announced, meeting commenced, some items of the agenda were gone through, then the right of the 8th defendant to note by proxy was negatived; after that certain other resolutions were passed but they are all illegal, void and of no effect. Therefore, both Parties agree that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As already stated, notices were issued and agenda was published and the meeting was also held. We fail to see where default is made in holding an annual general meeting in accordance with Section 166 . It is only in that restricted contingency that power is given to the Central Government to intervene on the application of any member and call for a general meeting of the company, which under Section 167(2) will be deemed to be 'an annual general meeting'. Therefore, the application of Section 167 has to be ruled out. Section 169 provides for calling of extraordinary general meetings on requisition. Even there it is only the matters set out in the particular requisition that can be considered. But in view of the nature of the subjects that could be discussed only at annual general meetings and referred to earlier, there is no scope for the application of Section 169 at all. 47. Section 186 gives power to the Company Court to call a meeting of a company other than an annual general meeting and it has reason to believe that it is impracticable to call such a meeting. We need not discuss this section any further because the power is given only to call a meeting, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Chairman (if any) of the board of directors shall preside as Chairman at every meeting of the company. Article 66 provides that if there be no such Chairman or if at any meeting he is not present within 15 minutes after the time appointed for holding the meeting, the members present shall choose some director to act and if there be no directors present and willing to act the members present snail choose some one of their number to be the Chairman. These articles clearly show that it is only the 4th defendant or one of the directors that will preside at any of the meetings, and therefore Mr. V. K. K. Menon is justified in his contention that it is impossible for the plantiffs to get redress even if they approach the company for another meeting for the purpose of having the resolution cancelled. 49. The first plaintiff has been given a proxy by the 8th defendant and the first plaintiff has certainly been deprived of a legal right of exercising his vote on behalf of the 8th defendant and this has been the result of the action of the 4th defendant in negativing the right of the 8th defendant to be represented by a proxy. The learned counsel for the appellants has attemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so alleged that the said resolutions were an illegal infringement on the rights of the minority and the plaintiff asked for declarations to that effect and for consequential injunctions. The trial Court and the High Court granted the reliefs prayed for in the suit. In dealing with the objection that the matter was one concerning the internal management of the company in which the Court cannot interfere, their Lordships at p. 85 of the report observed as follows: The last point was that the matter was one concerning the internal management of the company in which the court will not on principle interfere. In their Lordships' opinion it is much more than that. To treat the resolution as effective would mean that the company could terminate the payment of the managing agents by ordinary resolution contrary to the Article which requires an extraordinary resolution. This requirement was obviously intended as a protection to a minority who are not to have the appointment terminated against their will unless a particular majority finds in favour of it. Accordingly, their Lordships are in agreement with the decision of the Indian Courts in regard to resolution No. 2. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention that the plaintiffs therein should have availed themselves of the remedies provided under the Articles of the Company, the learned Judges observe at p. 105 as follows: Nor do we think that the contesting respondents are on any better ground in contending that the plaintiffs should have availed themselves of facilities for rectifying the position afforded by the Articles of the Company. The learned trial Judge considered that it was open to the share-holders by special resolution to remove the so-called director from office, a course dependent upon securing 3/4ths majority. In the end the learned Judges granted the declaration that the co-option of certain persons as directors was illegal and that the share-holders were entitled to elect some of their number to those vacancies. A case analogous to the present one is to be found in the decision reported in Nagappa Chettiar v. Madras Race Club, AIR 1951 Mad 831 (2), decided by Satyanarayana Rao and Panchapakesa Sastri JJ. That was a suit filed by some share-holders for a declaration that a meeting of the general body of members of the Madras Race Club held on 7-11-1947 was invalid and void and that all business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which the majority of share-holders were incapable of sanctioning (See Burland v. Earl 1902 AC 83); (2) Where the act complained of constitutes a. fraud on the minority and (3) where the action of the majority is illegal . 50. In that case the plaintiffs attempted to bring their grievances under two exceptions, namely that the acts complained of are illegal acts and secondly, that if the said resolution was not passed or passed illegally, the effect of applying the rule in (1843) 67 ER 189, to that case would be in directly to sanction by an ordinary resolution which the law requires to be passed only by a special resolution. The learned Judges accepted the contention that the said case fell within the said two exceptions and that the suit was maintainable. At p. 841 of the reports it is also seen that the learned Judges held that the special resolution being item 2 in the agenda before them was not passed that the meeting of the 7th November was not legal and that the members of the managing committee were not duly elected. To a similar effect is the decision of Mr. Justice Satyanarayana Rao and Mr. Justice Chandra Reddi in Narayana Chettiar v. Kaleeswara Mills Ltd. Fr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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